Marx and Keynes in Berlin

It’s 200 years today since Karl Marx was born. And it’s just over 100 years since the great 20th century economist John Maynard Keynes wrote about Marx’s contribution. Keynes wrote then: “how can I accept the (Communist) doctrine which sets up as its bible above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to modern world”. I think we can see that Keynes had a low opinion of Marx’s ideas.

And we can see why from the following comment of Keynes. “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? “

Keynes stood for the preservation of capitalism and its ruling class, for all its faults, over the ‘boorish proletariat’. This was my opening salvo in my presentation to the Marx 200 conference in Berlin, organised by the Rosa Luxemburg Institute. My presentation went on to cover where I thought Marx and Keynes differed and why Marx’s ideas were superior as an analysis of capitalism and as a basis for political action. In my view, it is necessary to spell out these differences because the dominant analysis of capitalism adopted in the labour movements of the major capitalist economies, especially by the leaders of those movements, is Keynesian theory and policy, not Marx. Marx is ignored or dismissed, on the whole.

However, at the session, Professor Radhika Desai disagreed with me. For her, the similarities (agreements) between Keynes and Marx were greater than the differences. It’s a debate that we could have, because in my view expunging the influence of Keynes (a supporter of the ruling class) from his dominant influence in the labour movement is an essential task. Certainly Keynes was determined to expunge the influence of Marx from the labour movement and from his economics students –as the quotes above show.

But let’s just briefly consider the similarities and differences between these two great political economists of the last 200 years. First, the agreements as usually presented by those who see them. Both Marx and Keynes think there is something wrong with capitalism. Both Marx and Keynes have a falling rate of profit theory. Both Marx and Keynes wanted the ‘socialisation of investment’. Both Marx and Keynes wanted and expected the ‘euthanasia of the rentier’ (Keynes’ words), namely the disappearance of finance capital.

From this, it sounds that, despite Keynes’ crude dismissal of Marx, he had a lot in common with Marx’s analysis. But that would be looking at it very superficially, in my opinion. In my paper to the conference session, I make a lot of points about how Keynes rejected the labour theory of value (both classical and Marx’s) and stood by marginalist and utility theory. Berlin 2018 For Keynes, there was no theory of exploitation of labour power that extracted profit from the unpaid labour of the working class. Profit came from ‘capital’ investing. Workers got wages for working; bankers got interest from lending and capitalists got profit from investing; each according to his or her own. This is the standard mainstream ‘factors of production’ theory. So from the start, Keynes denies that there is exploitation in the capitalist mode of production; the market decides and there is free and fair exchange: profit for capital, wages for workers.

Of course, if you have followed this blog and read Marx’s ideas, you would know that this is nonsense and a mere apologia for the rule of capital. Where does profit come from in this mainstream theory? There is no explanation. Somebody must pay for it and yet there is free and fair exchange of commodities in the market –so there can be no profit in the market, merely an exchange of value (money). Keynes’ and the mainstream approach really justifies the rule of capital and, for that matter, inequality of income and wealth by denying the reality that a small group controls of the means of production and forces the rest of us to work for a living. Indeed, Keynes said that: “For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition.“

Then there is the rate of profit theory. Those who reckon Marx and Keynes are allies in their critique of capitalism like to point out that Keynes had a theory of a falling rate of profit as well as Marx. Indeed, they were the same. But Keynes’ theory has little to do with Marx’s. Keynes did see the fluctuation of the rate of profit—or the marginal efficiency of capital (MEC), to use Keynes’s terminology—as the main factor that determines the changes in the phases of industrial cycle: “Now, we have been accustomed in explaining the ‘crisis’ to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital.

But Keynes’ theory of MEC is based on falling ‘marginal productivity’ due to the growing ‘abundance of capital’ and on the psychological expectations of capitalists about the future. The rate of profit will gradually fall as more and more technology is produced; the more abundant is capital, the less it is wanted and so its marginal value falls. This is not Marx’s theory. His depends on the continual drive by capital to replace labour in production with machines. Individual capitalists compete with each other to drive down costs and in so doing that pushes up the organic composition of capital by shedding labour. As labour is the only source of profit, not capital (as in Keynes’ theory), the rate of profit tends to fall. And it is a tendency.

For Keynes, however, the MEC will fall not because insufficient value is being extracted from labour but because capitalists ‘suddenly’ lose their appetite for investment: “that marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital-goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being based on shifting and unreliable evidence, they are subject to sudden and violent changes.”

So the fall in Keynes’ rate of profit is due to individual capitalists’ subjective views about the future (‘confidence’) not because of an objective change in the conditions of accumulation of capital and production (Marx’s view). As Paul Mattick Snr commented 50 years ago, “what are we to make of an economic theory, which after all claimed to explain some of the fundamental problems of twentieth-century capitalism, which could declare: ‘In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends’?

The ‘sudden collapse’ in MEC has caused the slump (because interest rates are now too high compared to profitability and people ‘hoard’ money instead of investing or consuming). But once that is overcome, we can return to the ‘normal’ capitalist mode of production. “Economic prosperity is…dependent on a political and social atmosphere which is congenial to the average businessman.” Unemployment, I must repeat, exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.”

Then there is this ‘socialisation of investment’. Keynes called for this (a vague phrase) as a ‘final solution’ to the problem of depression in a capitalist economy. If monetary easing (cutting interest rates and pumping in money by central banks) or fiscal stimulus (tax cuts and government spending) did not work in reviving the capitalist economy and getting capitalist to invest more, then maybe it would be necessary for the government to step in directly and take over the show. It is not clear, however, that Keynes meant any expropriation of capitalist industry and companies – something he would hate. He probably meant that state operations and even some plan should be introduced – something similar to Roosevelt’s New Deal projects in the 1930s in the US. And anyway, it is clear that Keynes saw ‘socialisation of investment’ as just a temporary measure to get capitalism going again (perhaps like the war economy 1940-45 eventually did). Once the ‘technical malfunction’ (lack of demand) in the capitalist mode of production had been overcome, then we could revert to free markets and investment for profit and end ‘socialised investment’.

In one of his last articles on the capitalist economy as the Great Depression ended and the second world war began, Keynes remarked that “Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.”

So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”

Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism.“For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” So “the class war will find me on the side of the educated bourgeoisie.” Fear of revolution was central to Keynes’ policies. I don’t need to explain that Marx did not see this way at all.

As for the ‘euthanasia of the rentier’, Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure. Because of that abundance, the return on lending money to invest would fall as the MEC fell. So bankers and financiers would no longer be necessary; they could be phased out. Well, that does not seem to be happening. Indeed, the very people who claim that Keynes is a ‘progressive’ economist with great similarities to Marx now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy. What happened to the gradual phasing out of finance in late capitalism a la Keynes?

In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, he describes the increased role of credit and finance in the concentration and centralisation of capital in late capitalism. Yes, the functions of management and investment become more separated from the shareholders in the big companies, but as I have argued in a previous post, this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.

So I reckon that the differences (and there are others in my paper) between Keynes and Marx are fundamental and any superficial similarities pale in comparison. That is important because it is Keynesian ideas that dominate in the labour movement, not Marx 200 years since his birth.

michael roberts posted: “It’s 200 years today since Karl Marx was born. And it’s just over 100 years the great 20th century economist John Maynard Keynes wrote about Marx’s contribution. Keynes wrote then: “how can I accept the (Communist) doctrine which sets up as its bible a”

“The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.”

Well that is one thing Marx and Keynes agree on!

It is only the “labor” movement that claims there is some “third way”.

To further clarify my comment, I want to quote from the Grundrisse pp. 762-762. I recommend to review this whole section.

“Surplus value expressed as profit always appears as a smaller proportion than surplus value in its immediate reality actually amounts to. For, instead of being measured by a part of the capital, the part exchanged for living labour (a relation which turns out to be that of necessary to surplus labour), it is measured against the whole. Whatever may be the surplus value which a capital A posits, and whatever may be the proportion within A of c and v, the constant and the variable part of the capital, the surplus value s must appear smaller when measured against c + v than when measured against its real measure, v. Profit, or – if it is regarded not as an absolute sum but rather, as is usually done, as a proportion (the rate of profit is profit expressed as the relation in which capital has posited surplus value) – the rate of profit never expresses the real rate at which capital exploits labour, but always a much smaller relation, and the larger the capital, the more false is the relation it expresses. The rate of profit could express the real rate of surplus value only if the entire capital were transformed solely into wages; if the entire capital were exchanged for living labour, i.e. if the approvisionnement alone existed, and if it not only existed not in the form of already produced raw material (which has happened in extractive industry), hence if not only the raw material were = 0, but if the means of production, also, whether in the form of instruments or in the form of developed fixed capital, were = 0. The latter case cannot occur on the basis of the mode of production corresponding to capital. If A = c + v, whatever the numerical value of s, then s/(c + v) < s/v. [33]
(2) The second great law is that the rate of profit declines to the degree that capital has already appropriated living labour in the form of objectified labour, hence to the degree that labour is already capitalized and hence also acts increasingly in the form of fixed capital in the production process, or to the degree that the productive power of labour grows. The growth of the productive power of labour is identical in meaning with (a) the growth of relative surplus value or of the relative surplus labour time which the worker gives to capital; (b) the decline of the labour time necessary for the reproduction of labour capacity; (c) the decline of the part of capital which exchanges at all for living labour relative to the parts of it which participate in the production process as objectified labour and as presupposed value. The profit rate is therefore inversely related to the growth of relative surplus value or of relative surplus labour, to the development of the powers of production, and to the magnitude of the capital employed as [constant] capital within production. In other words, the second law is the tendency of the profit rate to decline with the development of capital, both of its productive power and of the extent in which it has already posited itself as objectified value; of the extent within which labour as well as productive power is capitalized.”

‘ Keynes wrote then: “how can I accept the (Communist) doctrine which sets up as its bible above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to modern world”.’

Is there any evidence that Keynes had ever read ”Capital” when he made this buffoonish statement?

The letter (to George Bernard Shaw, 2 December 1934) is not yet out of copyright, so I give just the portion of it that bears on this.

As for my view of Marx, I said nothing in that article except to accuse you and Stalin of being still satisfied with his view of the capitalist world ‘which had much verisimilitude in his day is unrecognisable three quarters of a century later’. Surely it is certain that the picture has changed out of recognition.
My feelings about Das Kapital are the same as my feelings about the Koran. I know that it is historically important and I know that many people, not all of whom are idiots, find it a sort of Rock of Ages and containing inspiration. Yet when I look into it, it is to me inexplicable that it can have this effect. Its dreary, out-of-date, academic controversialising seems so extraordinarily unsuitable as material for the purpose. But then, as I have said, I feel just the same about the Koran. How could either of these books carry fire and sword round half the world? It beats me. Clearly there is some defect in my understanding. Do you believe both Das Kapital and the Koran? Or only Das Kapital? But whatever the sociological value of the latter, I am sure that its contemporary economic value (apart from occasional but inconstructive and discontinuous flashes of insight) is nil. Will you promise to read it again, if I do?

”, I am sure that its contemporary economic value (apart from occasional but inconstructive and discontinuous flashes of insight) is nil.”

Why not expound the reasons for such Koranic certitude? Do you also regard Smith and Ricardo in the same vein?

Since you claim to have read it numerous times, then you should quickly be able to delineate what you take to be its main errors. What for example do you understand by Marx’s distinction between fixed and constant capital. Do you regard such as an advance over Smith, Ricardo, Malthus, Mill etc. or not?

” Its dreary, out-of-date, academic controversialising seems so extraordinarily unsuitable as material for the purpose.”

How then did you bring yourself to read such a dreary volumes ‘numerous times’. Having also read the Koran, after capitalism has extinguished humanity, perhaps you may be last in line for induction into paradise, where hopefully beside many beautiful virgins you will also find beautiful volumes of ”Capital”, so that you may read them numerous times more!”

Apparently you missed the part where I clarify that those are Keynes remarks not mine, so I’ll repeat that: Those are Keynes’, with whom I disagree, remarks about Marx, with whose critique of capital I agree.

Oh.. and before we go any further, I should point out, I am the same person, S. Artesian, who previously posted under that name. For some reason, the log in process has begun defaulting to the Anti-Capital website, even after I log out and log back in as S. Artesian. Just so we keep clear of the sock-puppet argument……..

A thousand apologies for so demeaning you as to mistake your good self for the vulgar economist Keynes. Believe me, it is all down to the punctuation! I was perplexed at why the ‘Anti-Capital’.

That Keynes had read ”Capital” numerous times is, I think, a blatant lie. I find Radhika Desai’s comments unfathomable. That Keynes had occasionally a useful insight of scientific validity may well be true. Marx sometimes quote Malthus to that effect. Keynes claims to have intended to refute Ricardo’s criticisms of Malthus, whom he highly regarded, but he never did, because such would have exposed him.

Of Malthus, Ricardo himself remarked, “His arguments appear to me fallacious from beginning to end…. but those (arguments) which he now uses are delusive and scarcely to be understood” (”Notes on Malthus’ Measure of Value” Cambridge 1992 P. xv).

Keynes was a vulgar economist who was elevated to the status of myth in the subsequent decades. He doesn’t belong to the same discussion as Marx at all, either by intellect, or by historical importance, or by alleged theoretical similarities (there aren’t any – above all because Keynesianism is not a theory in the scientific sense of the word, whereas Marxism is).

It just happened that Keynes offered a rhetorical framework which the bourgeoisie realized it could use in the academic and public administration arenas during the first decades of the post-war period. Among the vulgar economists which were born at this time, Keynes became some kind of guru, and his image became more like a legend, an imaginary about what the capitalist system/society should be. This is so true that, nowadays, with Keynesianism dead, there are followers talking about Neokeynesianism and/or post-Keynesianism. The same is/will be truth for the other schools of vulgar economics, albeit the monetarists/neoclassics at least had the intelligence not to personify their schools around one man or formalize themselves in this or that faction (at least not as publicly).

If one views the capitalist mode of production as operating at the center of a (now global) social order of its own creation, then the cause of economic crises within that social system is surely overdetermined (in Althusser’s sense). Capitalism’s privately owned mode of production in itself cannot sustain its own social order, within which unemployment is necessarily one of its primary products.

The personifications of capital, however, view their activities as taking place within an illusory, eternal universal market of individual profit-seeking buyers and sellers of each other’s commodities. Pragmatic personifications of this illusion like Rex Tillerson, pretend they only want to “make money,” when in fact their actions are determined by the nature of the social order they necessarily create but pretend does not exist, at least as regards their behavior qua capitalists.

Marx has shown that the tendency of the rate of profit to fall is inherent to the capitalist mode of production as such, even accepting political economy’s ideal market premises.

The essence of Keynes’s “progressive” solution for crises is having the state socialize the cost of restoring “normal” employment levels and profitability with monetary and fiscal operations (that countervail trpf). In other words, he wanted his capitalism and to eat it too.

In a sense he succeeded all too literally. But what is called “military Keynesianism”–profit neither by MEC nor by surplus value creation, but by the destruction and/or theft of the wealth of others–was practiced long before Keynes, in the 17th century. It was the dynastic states’ sponsored “war capitalism”, fought among the slave owning/trading, genocidal gentlemen merchant adventurers of Western Europe, who provided the forced labor that created much of the primally accumulated wealth necessary for establishment of modern industrial capitalism.

Surplus value is not a trans historical category. Like value it is historical. It is confusing to extrapolate this to the past:

“From one standpoint, any distinction between absolute and relative surplus-value appears illusory. Relative surplus-value is absolute, since it compels the absolute prolongation of the working-day beyond the labour-time necessary to the existence of the labourer himself. Absolute surplus-value is relative, since it makes necessary such a development of the productiveness of labour, as will allow of the necessary labour-time being confined to a portion of the working-day. But if we keep in mind the behaviour of surplus-value, this appearance of identity vanishes. Once the capitalist mode of production is established and become general, the difference between absolute and relative surplus-value makes itself felt, whenever there is a question of raising the rate of surplus-value. Assuming that labour-power is paid for at its value, we are confronted by this alternative: given the productiveness of labour and its normal intensity, the rate of surplus-value can be raised only by the actual prolongation of the working-day; on the other hand, given the length of the working-day, that rise can be effected only by a change in the relative magnitudes of the components of the working-day, viz., necessary labour and surplus-labour; a change which, if the wages are not to fall below the value of labour-power, presupposes a change either in the productiveness or in the intensity of the labour.

If the labourer wants all his time to produce the necessary means of subsistence for himself and his race, he has no time left in which to work gratis for others. Without a certain degree of productiveness in his labour, he has no such superfluous time at his disposal; without such superfluous time, no surplus-labour, and therefore no capitalists, no slave-owners, no feudal lords, in one word, no class of large proprietors. [1]

Thus we may say that surplus-value rests on a natural basis; but this is permissible only in the very general sense, that there is no natural obstacle absolutely preventing one man from disburdening himself of the labour requisite for his own existence, and burdening another with it, any more, for instance, than unconquerable natural obstacle prevent one man from eating the flesh of another. [2] No mystical ideas must in any way be connected, as sometimes happens, with this historically developed productiveness of labour. It is only after men have raised themselves above the rank of animals, when therefore their labour has been to some extent socialised, that a state of things arises in which the surplus-labour of the one becomes a condition of existence for the other. At the dawn of civilisation the productiveness acquired by labour is small, but so too are the wants which develop with and by the means of satisfying them. Further, at that early period, the portion of society that lives on the labour of others is infinitely small compared with the mass of direct producers. Along with the progress in the productiveness of labour, that small portion of society increases both absolutely and relatively. [3] Besides, capital with its accompanying relations springs up from an economic soil that is the product of a long process of development. The productiveness of labour that serves as its foundation and starting-point, is a gift, not of nature, but of a history embracing thousands of centuries.”

What Marx never suspected is that once the bourgeoisie was defeated the worker would continue to extract surplus value by the bureaucracy of the state in terms of their own interests, that is the great failure of his theory, to which we should add, the arrogance philosophical, epistemological subjectivism and proclivity to the political cult of the own personality of Marx, nefarious practices within the Marxist movement in their origins and that will be reproduced by good of their disciples, some of which naturally would finish quarreled between them; Such is the case of Trotsky and Stalin who, not coincidentally, saw for the first time the V Congress of the Social Democratic Labor Party of Russia, in 1907, which took place, not coincidentally, in that refuge of conspirators (including Lenin) against the European powers. that was always London. Brave danger to capitalism represented these revolutionaries and genocide of the Russian peasant, who could find no better place to meet openly than in England, protected by his Crown, that is to say, the cradle of the system they claimed to fight.

Good article Michael. The final irony is of course Bretton Woods which Churchill described upon signing as the biggest defeat suffered by the British Empire outside of war. No wonder Keynes had a minor heart attack after a blazing argument there and was dead within two years, but not before suffering a further humiliation in 1945 by being forced to accept another US loan to bail out Britain instead of the “justice payment” he was seeking. Keynes may have worshipped capitalism, but the war it precipitated and the way it bankrupted his beloved Britain, led to a premature death. Capitalism does that to its admirers.

Beside his magazine printed in Florida, Carlos also has managed to found a radio station aimed against Cubans. Not bad going for a poor student emigrant from Cuba. I wonder who provided him with the surplus value realised in hard cash to fund such costly undertakings? Some state bureaucracy?

Still, some entertainment to be gained from perusing his English, which sounds as if it were translated by a machine from a speech of Mussolini’s ( a hero of Carlos’?) when he had been suffering from a prolonged bout of constipation.

[…] Michael Roberts – who identifies as a Marxist economist – has a long post comparing Keynes and Marx’s ideas that are sometimes described as similar. Proponents of the similarity view argue that both Marx and Keynes think there is something wrong with capitalism, they both have a falling rate of profit theory, they both wanted the ‘socialisation of investment’ and they both wanted and expected the disappearance of finance capital. But similarities are superficial, as for Keynes there was no theory of exploitation of labour power, their theories of a falling rate of profit are grounded on very different premises, and Keynes’ “socialisation of investment” is hardly meant as expropriation of capitalists. Roberts argues that the differences ought to be spelled out, because the dominant analysis of capitalism adopted in the labour movements of the major capitalist economies, especially by the leaders of those movements, is Keynesian theory and policy, not Marx. […]